Why Property Prices Are Higher Than 3 Decades Ago
In an article for the website Property Update, Pete Wargent discusses 7 reasons why property prices today are nowhere near the levels they were at three decades ago. Wargent begins the article by recommending to investors to capitalise on the phenomenal population growth and cramped supply in urbanised locations.
7 reasons for higher property prices (as against 30 years ago)
- Inflation is a key reason for the hike in property prices. Of course, when we look at the inflation-adjusted growth in ‘real’ terms, the figures we reach are quite different to what we will arrive at if we consider nominal growth in prices with scant regard to the growth in income level.
- Household income has gotten a shot in the arm over the last few decades and this is largely because of an increase in the number of two-income households.
- Looking back 32 years ago, we can clearly come across a relaxed credit structure which led to a huge credit growth (at the cost of a certain percentage of mortgage defaults). This kept raising property prices, too.
- From 17% in March 1990 to talks of 2% by August 2015, we have come a long way in terms of interest rates. This has catapulted property prices in no uncertain terms.
- We are adding 300,000 heads each year to our population count and this means that we need to cough up more homes; the demand-supply imbalance has created a perfect scenario for a price hike.
- Population growth could be tackled if we had more affinity towards renting but we are home owners at heart and this adds to the supply puzzle; an aspect which is quickly becoming a concern in key urban areas, adding to the peaking prices.
- And to reiterate, the fact that we have the largest number of home owners across the globe only adds to the prices.
You can read the original article here.
Affordability is an issue
Price rise cannot be deemed a problem till issues of affordability creep up. The construction industry which has risen from a long slumber is working beautifully in sync with the labour industry (which, again, is aided by the infusion of interstate migration of skilled labour). In coming years, this will catalyse ferocious construction and solve the demand-supply imbalance to a great extent. Here’s hoping that red tape and compliance do not rear their not-so-pretty heads.